Ubuntu can be translated as “I am because we are“. We know from our troubled history that through the centuries the majority of our society were excluded from many of the rights, privileges and supports afforded to Whites. Stokvels have endured for centuries and show the power of ubuntu.
Oral traditions tell us that Stokvels have their origins in the early 18th century in the Eastern Cape. Livestock fairs used to be held on a rotational basis at the time. Black people, who were excluded from any formal financial services started pooling their money in order to buy livestock for themselves. To this day, Stokvels provide informal financial services to a large number of our society.
African Response Surveys offers up the following interesting facts, based on their research:
- 552,046 – The total of Stokvels in operation
- 11.6 million – Total membership
- R49.5 million – The total amount of contributions made to Stokvels
- R357 – The average contribution made
- 3+ – The average number of Stokvels that members belong to
- 34+ – The average membership of a Stokvel
There are different kinds of Stokvels:
- Basic Stokvel – Members pay a monthly contribution and take turns receiving the full amount of all the contributions. The member is free to do with it what they want to.
- Family Stokvel– This is simply a Stokvel where all the members belong to one family. This often gives them access to more favourable banking solutions and interest rates.
- Grocery Stokvel – Here members pool monthly contributions to buy groceries in bulk. They may buy groceries at different times in the year or keep it for the festive season in December. Some may also buy other items, such as furniture or clothing.
- Investment Stokvel – Those who take part in these kinds of Stokvels tend to take a longer view, with pay-outs expected only after five years or so. Members do a great deal of homework and may consult professionals.
- Party Stokvel – These groups may host events to which they charge a cover charge or supply catering and bar services to parties in the community. Members divide the proceeds amongst themselves. They may use some of the money to buy equipment that belongs to the Stokvel.
- Loan Stokvel – These provide small to medium-sized loans to members from their pooled resources. The interest rates can be as high as 20 to 50%.
- Burial Stokvel – This is one of the oldest forms. Not only does this ensure the financial means to bury one’s loved one appropriately, members also pitch in and help with preparation and practical support.
Why does it work so well?
The carrot – it is not all about the money
Members hold regular meetings combining business and socialising. This sense of community help to create a sense of common purpose and provide the motivation to meet shared goals.
The stick – I know where you (and your mother) live
Members have community and social ties that connect them, so there are high levels of trust involved. Should you default, you will not only let the group down, your other social networks will be affected as well. The impact of your actions is less abstract than if you default on a bank loan – with a Stokvel your actions have real world consequences.
- You will learn patience because you must wait for your turn
- You know when it will be your turn to receive a lump sum and can therefore plan for it
- You could learn a lot – especially if you are part of an investment Stokvel where members do careful research and discuss their investments regularly
- A bigger pool of money ensures better bargaining power and more favourable terms
- Your social ties and identity within the community will be strengthened
- Stokvels are informal and rely on high levels of trust. They are not regulated and protected through law. If someone disappears with your money, there is little you can do, other than lay a charge of theft.
- Without the insights of a good, registered Financial Advisor, your group may make needless and costly investment mistakes, regardless of doing good homework. Regulations, rules, fees, and incentives change and may not be offered unless asked for.
- As with all forms of fraud at the moment, there has been an upsurge in scams that target Stokvels. ‘Excellent opportunities’ with ‘well above-average returns on investment’ may turn out to be scams or pyramid schemes.
- Others in the community may also know that you are due for a lump sum and may do anything to lay their hands on it. You may be able to conscientize your own family around not talking about it, but will the other members of the group? And since the ties in the community run deep, someone may tell someone who may tell…
- Groups may need to rely on additional transport if they buy groceries in bulk. The chances are that the drivers may drive off, or someone may be waiting around the corner to relieve them of their load…
How can you prevent bad things from happening?
- Use electronic banking for payments and transactions – many banks have developed favourable group saving schemes that will help you with the day-to-day management of your account. You may need some time educating members about this and help older members make the transition.
- Make sure you do your homework – do NOT join WhatsApp or Internet-based groups unless all members can be vouched for – rather stick with the people you know well.
- Make sure your Stokvel has a clear constitution – this must show the following:
- The group’s vision and purpose
- The group’s values and agreed-upon conduct and what will happen if someone does not behave appropriately
- The committee in charge of managing the Stokvel
- How they are chosen and when
- Their roles and responsibilities
- There should be a chairperson, secretary, and treasurer
- What the monthly contribution should be and how this will be managed
- When and how withdrawals and payments are made by and to members
- What would happen if a member is unable to pay, wants to leave or passes away?
- How and when a person may join the Stokvel
- Explain in clear terms how disputes and disagreements will be handled
Stokvels have been the reason why people could eat, how children have been put through school and university, how houses have been built, the sting of poverty have been reduced, businesses have been started and loved ones have been put to rest in a dignified manner.
The time has come to ensure that it moves with the ever-increasing complexity of the times. We would strongly advise you and your group to come and speak to a Financial Advisor whose business is giving advice, not just making a sale so that they can earn commission. Let us look at money differently, together. Allow us to help you increase your financial literacy, build financial independence and grow your wealth so that you can share that with those who matter to you most.